Court of Appeals Addresses Carmack Amendment

An informative case concerning those interested in the Carmack Amendment was recently decided. The case, Exel, Inc. v. Southern Refrigerated Transport, Inc., No. 14-3953 (6th Cir. 2015), involved three different parties – a broker, shipper, and carrier.

This decision is one in a series that have been recently decided around the issue of carrier liability of interstate shipments. Although this fact pattern is more complicated than most, it still involves a common situation where shipped goods were lost and the involved parties argue over whether their ambiguous contracts somehow limit or establish a liability amount.

The case contains a number of lessons that anybody in the trucking industry can learn. One of the most important lessons is that no matter how clear terms seem to parties prior to shipping, it is best to have those terms on paper in a way that complies with Carmack Amendment.  Seemingly, this is a lesson that is taught in every Carmack Amendment case, not just this one.

Background and Important Facts

The broker in this case arranged for the shipment of pharmaceuticals allegedly valued at over $8 million with a well known carrier. Prior to shipping, the companies entered in a Master Transportation Services Agreement (MTSA). That agreement set out the terms of the shipping contract, and had an ambiguous term of RVNX $2.40. In addition to this term and the MTSA, the parties also executed bills of lading, but the bills of lading did not limit liability.

At some point during the transportation, the goods were stolen. After the goods were stolen, the companies disputed about how much the carrier should be liable. The carrier argued that the term RVNX $2.40 meant “replacement value not to exceed $2.40 per pound” or a little more than $50,000 in this case. But the shipper claimed a loss of more than $8 million with the stolen goods.

Court Explains Role of Carmack Amendment

This case was interesting because the shipper assigned all of its claims to their broker, and the suit proceeded with the broker standing in the place of the shipper against the carrier. In the suit the broker sued on various state claims, and in the alternative for the Carmack Amendment to apply. The carrier fired back in the suit arguing that only the Carmack Amendment applied, and that their liability was limited under the MTSA and the term of RVNX $2.40.

In their opinion, the court put all of the parties in their proper place under the plain meaning of the Carmack Amendment. The court rule that the state claims were preempted by the Carmack Amendment, and did away with those claims. But the court also ruled against the carrier stating that a simple mention of RVNX $2.40 in a MTSA did not effectively limit liability under the Carmack Amendment. As we have consistently stated on this blog, there are specific steps that must be taken to actually and legally reduce liability under the Carmack Amendment.  In essence the court said that “an agreement between a carrier and broker that does not establish the shipper’s assent cannot set the carrier’s liability.”

This case illustrates how valuable it is for your company to have an intelligent legal partner helping you with your shipping business. At Anderson and Yamada, P.C. we work with trucking companies every day to ensure that all of their legal needs are met. Contact us so we can begin our relationship with your company too.

Proposed Legislation to Create National Hiring Standard, Reduce Influence of CSA BASICs

U.S. House representatives have introduced an amendment to H.R. 1120 that would affect the trucking industry in several ways. H.R. 1120 was originally introduced by the House in 2013 as a way to prevent uncertainty in the labor market, and the amendment seeks to do the same with the trucking industry. The overall goals of the proposed language are to improve interstate commerce through creating a national standard for motor carriers.

What H.R. 1120 Would Do

The primary purpose of the new proposal would be to nationalize hiring standards for motor carriers. Under the language of of the bill, freight forwarders, brokers, shippers, and receivers would be required to do the following before hiring a motor carrier:

  • Ensure that the motor carrier has current and accurate registration with the Federal Motor Carrier Safety Administration;
  • Check that the motor carrier has the minimum amount of insurance required under law; and
  • Check that the motor carrier does not have an “unsatisfactory” rating for safety.

The proposed standards are a way to put nationally recognized best practices into law..

Currently the FMCSA uses the Compliance, Safety, Accountability program to quantify and rate each motor carrier under each motor carrier’s Behavior, Analysis, and Safety Improvement Categories, known as CSA BASICs. But according to many in the industry, the current standards and rules under CSA BASICs are confusing and should not be used as a tool in hiring motor carriers. CSA BASICs rates a motor carrier on the following categories:

  • Unsafe Driving;
  • Hours-of-Service Compliance;
  • Driver Fitness;
  • Controlled Substance/Alcohol Regulation Compliance;
  • Vehicle Maintenance;
  • Hazardous Materials Compliance; and
  • Crash Indicator.

While rating motor carriers based on CSA BASICs can be helpful to the FMCSA, it too often is overly complicated for those companies hiring motor carriers. If passed, the bill would replace this system by simply requiring a freight forwarder, shipper, receiver, or broker to find out whether the motor carrier is safe or not.

Impact on the Industry

This proposed legislation would go a long way to provide stability to an increasingly unstable legal landscape. As many transportation companies know, negligent selection of a motor carrier can cripple a company’s business plans. CSA BASICs does not help in that regard because it increases the number of ways a plaintiff can accuse a company of being negligent. Of course brokers, shippers, receivers, and freight forwarders have a responsibility to act reasonably and safely in selecting a motor carrier, but CSA BASICs has many categories that can be picked apart and scrutinized by plaintiff’s attorneys. As a way to mitigate that problem, under the proposed legislation in H.R. 1120, hiring would be based on a simple safe or not safe rating issued by the FMCSA. Having one standard that companies can look to before hiring a motor carrier can go a long way in stabilizing the industry.

The trucking industry’s legal landscape continues to change and develop. As it does, trucking companies will be well served to have a truck law focused law firm on their side to help them when they need it. The attorneys at Anderson and Yamada, P.C. are ready to represent you and your company’s interests.

MAP-21’s New Broker Requirements will Affect Carrier Operations

MAP-21On October 1, 2013, the Federal Motor Carrier Safety Administration (FMCSA) published in the Federal Register a final rule on a number of self-implementing provisions contained within the Moving Ahead for Progress in the 21st Century Act (MAP-21).  The new rules contain many changes regarding property broker and freight forwarder obligations that may significantly affect your carrier operations.

Of primary impact for carriers is that MAP-21 prohibits carriers from providing brokerage services unless they register as a broker.   The new rules make clear that carriers do not have the inherent authority to broker shipments.  As such, carriers cannot arrange or offer to arrange for the transportation of property by a carrier for compensation when not transporting the property and assuming responsibility for the property.

MAP-21 thus abolishes the practice of “convenience interlining” by carriers that do not have broker authority.  “Convenience interlining” is when the origin carrier does not provide service on its own equipment for at least a portion of the journey.  The carrier is tendered a shipment, but for various reasons does not transport the shipment on its own equipment.  Rather, the carrier subsequently tenders the shipment to another carrier for actual transportation.  Those carriers who wish to continue their past practices of “convenience interlining” must obtain a broker’s license or freight forwarder permit to continue these types of operations.

True interlining is still allowed.  True interlining is when the property is transferred between two or more carriers for movement to its final destination.  The new rules, however, narrow the term transportation in this regard to situations where the shipment is actually transported for at least a portion of the shipment’s route on equipment owned and operated by the carrier.  Loading, unloading, cross-docking or similar activities do not appear to suffice as transportation for interlining.  True interlining is allowed under the carrier’s own operating authority or under the authority of the originating carrier.

The FMCSA acknowledges that it does not have a mechanism to monitor compliance by carriers with the requirement to obtain brokerage authority since the agency is not in a position to know whether carriers are brokering freight.  However, the FMCSA is inviting aggrieved parties to file complaints against carriers that are brokering freight through its National Consumer Complaint Database.  The agency is also committed to developing, for the first time, a comprehensive enforcement program to monitor compliance.

If a carrier is found to be brokering freight without having obtained appropriate broker authority, the carrier will be liable for fines and private causes of action.  The fines to be imposed by the FMCSA for unlawful brokering can be as much as $10,000 per occurrence ($25,000 for Household Goods).  In addition to company liability, the company’s officers, directors, and “principals” can be held personally liable for any fines imposed.  MAP-21 also creates a private right of action for unlawful brokering for injured third parties for all valid claims regardless of the amount.

Carriers that wish to avoid $10,000 fines per occurrence may obtain broker authority by filing an OP-1 application requesting broker authority with the FMCSA.  The carrier is instructed to provide its USDOT number, but to not include its current MC number.  Existing carriers applying for property broker authority in the same legal entity will be issued a second MC number with respect to the property broker authority.  Importantly, there is currently no obligation for existing companies holding both authorities to take any steps to obtain a second MC number.  To obtain new or maintain current broker authority, proof of a surety bond or trust fund agreement in the amount of $75,000 must be filed with the FMCSA in the form of a BMC-84 or BMC-85.

There has been much confusion since MAP-21 became law regarding whether or not the new rules will require separate legal entities for each authority held.  Some commentators have taken the position that MAP-21 prohibits a single legal entity from holding multiple authorities; however, that position directly contradicts the text of MAP-21 and the FMCSA’s own position that confirms that a single entity can continue to hold multiple authorities.  While separate entities are not needed for carrier and broker authority and operations, it is still recommended as the best practice to hold the authorities and conduct operations under separate legal entities.

Another point of confusion is in relation to co-brokering (where one broker relies on the services of another broker to arrange transportation of freight shipments).  While MAP-21 established regulations forbidding carriers from brokering freight and brokers from providing carrier services, there is no mention within MAP-21 of co-brokering.  As such, co-brokering will continue to be utilized throughout the industry.  However, to do so, one should ensure that co-brokering is not prohibited by the shipper-broker contract, gain the consent of the shipper, and ensure that shipments are only co-brokered pursuant to a co-broker contract.

Finally, if your company or affiliated companies have dual authority, you will be required to specify, in writing, the authority under which the service will be provided upon being tendered a shipment.  That is, you will need to inform the shipper in writing whether you will be accepting the shipment as a carrier or broker.  The FMCSA has not provided any guidance on how to properly handle this notice requirement.  Possible solutions may be to have a simple check box on all load confirmations and/or bills of lading where you can indicate whether the shipment is accepted under your carrier or broker authority.  It may also be possible to amend your contracts or tariff to indicate that any shipment accepted under your carrier authority may be passed on to your broker operations due to capacity constraints.  Or you could simply route all shipments through your brokerage operations.  Other solutions are also likely available.

The FMCSA has published helpful guidance on the new registration and financial security requirements for brokers of property and freight forwarders.  It is highly recommended that you review that document which can be found at http://federalregister.gov/a/2013-21539

Determining whether your operations will need dual authority, how to structure your entities, and how to handle dual authority will depend on each carrier’s particular circumstances.  If you have questions on whether or not your operations require you to obtain broker authority or have questions on how best to set up your carrier and broker operations, please feel free to contact me.

New Trucking Hours of Service Rules Go Into Effect Today – July 1, 2013

logbookToday is the day that the FMCSA will officially begin enforcing the new hours of service regulations for all commercial motor vehicles.  Long-haul truck drivers will feel the most impact from the HOS changes, along with their employers and the shippers/brokers who hire them. Schedules will need to be adjusted to account for fewer miles traveled per day and the change to on-duty vs. off-duty definitions. Drivers will likely see a forced reduction in total work hours – resulting in a possible pay cut – due to the mandatory breaks and 34-hour restart.

The following is a summary of updated hours of service rules, according to the FMCSA.

  • 11-Hour Driving Limit: The FMCSA kept the 11-hour daily driving limit in the final rule.
  • 30-Minute Breaks: The final rule prohibits a driver from driving a commercial motor vehicle if more than 8 hours on duty have passed since the last break (either off duty or sleeper berth time) of at least 30 minutes. Under the final rule, for example, if the driver started driving immediately after coming on duty, he or she could drive for 8 consecutive hours, take a half-hour break, and then drive another 3 hours, for a total of 11 hours. If a driver worked in a warehouse or did other non-driving functions for 3 hours after coming on duty, and then began driving, the driver would require a 30-minute break after 5 hours driving before being able to drive again. The driver could then drive 6 more consecutive hours for a total of 11 hours.
  • 34-Hour Restart: The rule makes two changes to the 34-hour weekly restart provision. First, a driver may use the restart provision only once every week (defined as 168 consecutive hours). Second, the restart must include 34 consecutive hours off duty with two periods of 1:00 a.m. to 5:00 a.m.
  • Weekly On-Duty Limits: The rule does not change the 60-hour or 70-hour weekly on-duty limits.
  • 14-Hour Driving Window: The maximum driving window will continue to be 14 consecutive hours after coming on duty. Because of the break provision, drivers will be able to work 13.5 hours in the 14-hour period (if they are driving after the 8th hour on duty).
  • Requirements at the End of the Driving Window: Drivers may remain on-duty at the end of the 14th hour, but may not drive again until at least 10 consecutive hours off duty.
  • Sleeper Berth: The final rule made no changes to the sleeper berth requirements.
  • Definition of On-Duty Time: The FMCSA amended the definition of on-duty time to exclude any time resting in a parked CMV. In a moving CMV, on-duty time does not include up to 2 hours in the passenger seat immediately before or after 8 consecutive hours in the sleeper berth.
  • Penalties: Driving (or allowing a driver to drive) three or more hours beyond the driving-time limit may be considered an egregious violation and is subject to the maximum civil penalties.

In February 2012 trucking advocates and public safety advocates both filed lawsuits against the FMCSA’s December 2011 HOS rule – the trucking groups indicated the rule is overly burdensome on the industry while the public safety advocates believed it didn’t go far enough. In March 2013, the U.S. District Court of Appeals for the District of Columbia Circuit heard oral arguments but the court has yet to make a ruling on the case.  As such the new rules are in effect as of today.

Additional information can be found through the following links:

MAP-21 Changes Mandated for Transportation Providers & the Current Window of Opportunity

MAP-21MAP-21 requires motor carriers, brokers and freight forwarders (“providers”) to provide service in a particular manner.  Because of the new laws many providers are required to substantially change their current method of operation. First, multiple types of authorities with distinct numbers may need to be obtained, which may be best accomplished in different entities. Second, providers must specifically state in writing to the customer before providing service the specific authority type and number under which they are providing authority. Third, in order to obtain broker or freight forwarder authority a $75,000 surety bond will be required. Fourth, failure to provide broker service in the manner required can result in $10,000 penalties for each violation and, in addition, civil liability to any person injured for damages incurred without limitation; and, the penalties and liability can be imposed against the business and its individual officers, directors, and principals.

A window of opportunity currently exists to make any necessary changes to your operation before the FMCSA fully implements the new requirements and procedures and before the flood of applications that will result on the eve of the new requirements and procedures taking effect and thereafter.

MAP-21: The New Law.  Map-21 refers to the “Moving Ahead for Progress in the 21st Century Act,” which was signed into law by President Obama on July 6, 2012. Small but critical provisions applicable to providers are contained in the Act and are located in different sections of USC Title 49.

General Registration Requirements–49 USC 13901.  In order to lawfully operate as a motor carrier, broker or freight forwarder, a provider must now hold specific authority to provide that service. That is, if  Company A wants to operate as a motor carrier, it must hold a motor carrier authority; and if it also wants to operate as a broker, it must also hold broker authority; and, further, if it also wants to operate as a freight forwarder, it must hold freight forwarder authority. A provider must be specifically authorized for each type of service it provides. Further, each type of authority will be issued “a distinctive registration number.”  Most important, the provider must specify in writing the specific authority under which it is providing service. This latter requirement of specifying the authority number for the type of service provided applies to “each agreement to provide transportation or service for which registration is required . . .” Thus, it is our opinion that the specific authority number for the type of service to be provided must appear on each load confirmation, bill of lading, transportation contract, or other document pursuant to which service is provided.

Heightened Standards to Obtain Authority–49 USC 13902, 13903 & 13904.  The “check the box” and pay $300 era of obtaining FMCSA authority is being eliminated. Applicants for motor carrier authority must now establish that they know and will comply with the safety requirements, disclose any relationship between them and other providers and, eventually, pass a written proficiency examination. Additional requirements apply to HHG carriers, passenger carriers, and Mexican and Canadian domiciled applicants. Applicants for broker and freight forwarder authority must now establish their experience and have at least one officer that has 3 years of experience or provides sufficient information to establish that he/she knows the rules, regulations, and industry practices.

Renewal Required–49 USC 13905.  Brokers and freight forwarders are required to renew their registrations within 4 years after the enactment date of the Commercial Motor Vehicle Safety Enhancement Act of 2012 and every 5 years thereafter.

Penalties & Civil Liability for Unlawful Brokering–49 USC 14916.  “Any person who knowingly authorizes, consents to, or permits, directly or indirectly, either alone or in conjunction with any other person” brokerage service without holding broker authority and having the required $75,000 surety bond is liable (i) to the government for a penalty of up to $10,000 for each violation and (ii) “to the injured party for all valid claims” without limitation. Moreover, liability is imposed, jointly and severally, on the provider and its individual officers, directors, and principals.

Motor Carrier Registration Requirements–49 USC 13902(a) (6) & (i).  By far the most dramatic change contained in MAP-21 is the requirement that a motor carrier obtain broker authority to continue doing what it now may routinely do in its day-to-day operations.   A motor carrier cannot provide broker services unless it has registered as a broker. Further, a motor carrier provides motor carrier service only if it provides transportation with–

(A) self-propelled motor vehicles owned or leased by it; or

(B)  interchanges under the FMCSA regulations if it–

(i)  physically transports the cargo at some point; and

(ii) retains liability for the cargo and for payment of interchanged carriers.

As a result of this new statute the common practice of some motor carriers to accept shipments and to immediately “broker,” “sub-contract,” “interline” or otherwise arrange for another motor carrier to transport the shipments is illegal.  In these instances, only if the motor carrier both “physically transports” the cargo and retains liability for the cargo and for payment to the other carrier will the motor carrier be providing legal motor carrier service. It should be noted that it appears the word “interchanges” was used in error and “interlines” is the correct word that should have been used. The two words have different meanings and are not synonymous. That “interchanges” is an incorrect term is confirmed by the FMCSA’s subsequent reference to “interlining” in discussing this requirement, as discussed below.

It appears that the “physically transports” requirement negates the broad spectrum of services that are encompassed by the definition of “transportation” set forth at 49 USC 13102(23) (B).  Under 13102(23)(B) “transportation” is defined as including, in part, “receipt,” “refrigeration,” “ventilation,” “storage,” “handling,” “packing,” “unpacking” and “interchange.”  However, none of these transportation services generally involves physically transporting the cargo in self-propelled vehicles, that is, a truck or tractor-trailer.  The FMCSA has issued “guidance” in the form of frequently asked questions (FAQ) that do not rebut this conclusion. Indeed, the example given in response to the question “What is freight interlining?”  refers to Carrier A transporting a shipment from Washington, DC to San Antonio where it turns it to Carrier B for transportation to Los Angeles.

Broker & Freight Forwarder Surety Bond–$75,000–49 USC 13906(b) & (c)

MAP-21 provides that the required broker and freight forwarder surety bond amount increases to $75,000 on July 6, 2013. However, the FMCSA has indicated that this requirement is not effective until October 1, 2013.

Take Action Now. As indicated above, there is a current window of opportunity to make the changes required by MAP-21 before all of the requirements are implemented. The changes to your operations may be minor or major, but there are changes that need to be made. If you wish to discuss your specific situation further, please do not hesitate to contact either of us.